Good morning and welcome to the 2024 First Quarter Earnings Conference Call hosted by BNY Mellon. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference call and webcast will be recorded and will consist of copyrighted material. You may not record or re-broadcast these materials without BNY Mellon's consent. I will now turn the call over to Marius Merz, BNY Mellon’s Head of Investor Relations. Please go ahead.

Thank you, operator. Good morning everyone, and thanks for joining us. I'm here with Robin Vince, President and Chief Executive Officer, and Dermot McDonogh, our Chief Financial Officer. As always, we will reference our financial highlights presentation, which can be found on the Investor Relations page of our website at bnymellon.com. And I'll note that our remarks will contain forward-looking statements and non-GAAP measures. Actual results may differ materially from those projected in the forward-looking statements. Information about these statements and non-GAAP measures are available in the earnings press release, financial supplement and financial highlights presentation, all available on the investor relations page of our website. Forward-looking statements made on this call speak only as of today, April 16, 2024, and will not be updated. With that, I will turn it over to Robin.

Thanks Marius, and thank you everyone for joining us this morning. Dermot will talk you through the financials in a moment, but in summary, BNY Mellon is off to an encouraging start for the year. The firm delivered solid financial performance, while we continued to take important steps in the deliberate transformation of our company. And we're seeing early signs of progress that give us confidence, as we work toward the opportunity ahead. Looking beyond BNY Mellon, the first three months of the year provided a mostly constructive operating environment with global markets signaling expectations for continued growth. Equity and credit markets rallied, even as rate cut expectations partially unwound and bond yields rose. Foreign exchange markets, on the other hand, saw a continuation of the relatively low volumes and muted volatility that we've now seen for the past several quarters. And of course, there are many tail risks, including a variety of different market scenarios, the possibility of escalation in one of the ongoing geopolitical conflicts or an unexpected result in the many elections taking place worldwide this year. As I've said many times before, being resilient matters and this represents a commercial strength for our business. We are constantly preparing and positioning for a wide range of potential scenarios to support our clients and deliver compelling outcomes for our shareholders. Now referring to page two of the financial highlights’ presentation. BNY Mellon delivered double-digit EPS growth as well as pre-tax margin and ROTCE expansion on the back of positive operating leverage in the first quarter. We reported earnings per share of $1.25 up 11% year-over-year, and excluding notable items, earnings per share of $1.29 were up 14%. Total revenue of $4.5 billion was up 3% year-over-year. That included 8% growth in investment services fees, led by strength in asset servicing, issuer services, and clearance and collateral management, which more than offset revenue headwinds from muted volatility in FX markets and lower net interest income. Expenses of $3.2 billion were up 2% year-over-year and up 1% excluding notable items. Consistent with our goal to generate at least some operating leverage this year, in the first quarter, we did deliver positive operating leverage, both on a reported basis and excluding notable items. Our reported pre-tax margin was 29% or 30% excluding notable items, and we generated a 21% return on tangible common equity. Our balance sheet remains strong with capital and liquidity ratios in line with our management targets and deposit balances were up both year-over-year and sequentially. Year-to-date, we returned close to 140% of earnings to common shareholders through dividends and buybacks, and our Board of Directors has authorized a new $6 billion share repurchase program. On our last earnings call in January, we communicated medium-term financial targets and presented our plan to improve BNY Mellon's financial performance. We framed this work for our people through three strategic pillars. Be more for our clients, run our company better, and power our culture. Throughout the first quarter, we've made progress to be more for our clients, including both product innovation and greater intensity around better delivering our platforms to the market so we can truly help clients achieve their ambitions. As a global financial services company, our unique portfolio of market-leading and complementary businesses presents a tremendous additional value for our clients and shareholders. As you know, we are maturing our ONE BNY Mellon initiative by implementing this mentality into the nuts and bolts processes across the company. For example, we recently announced that Ashton Thomas Securities, an independent broker dealer and registered investment advisor, will use clearing and custody services from Pershing and BNY Mellon precision direct indexing capabilities from investment management. This is a great example of multiple lines of business working together to provide holistic solutions for clients. As we continue to grow our client roster, we also know that delivering more to our existing clients represents a significant opportunity. As another example, last month we expanded on a long-standing relationship with CIFC, an alternative credit specialist and existing client of ours in asset servicing and corporate trust to bring their US direct lending strategy onto our global distribution platform. This also speaks to the incremental value that asset servicing can bring to our asset manager clients, by allowing them to tap into BNY Mellon's global distribution platform to extend the reach of their capabilities. Consistent with our previously communicated intention to grow the revenue contribution of our market and wealth services segment, we're starting to see our investments to accelerate revenue growth in this high margin segment begin to bear fruit. For example, we continue to be encouraged by the level of interest from both new and existing clients in our Wove, Wealth Advisory Platform. We have several clients live on the platform today. We closed a number of deals in the first quarter, and the sales pipeline continues to be strong. Across market and wealth services, we also continue to bring new solutions to the market. For example, Treasury Services successfully launched virtual account-based solutions, a set of cash management solutions to meet our clients' demands for more flexibility and transparency into their payment flows. Next, we are taking important steps to run our company better by simplifying processes, powering our platforms, and embracing new technologies. Over the past several months, we've been working to realign several similar products and services across our lines of business. The largest of these changes was moving institutional solutions from Pershing to our Clearance and Collateral Management business. This is also part of making progress toward adopting a platform's operating model. By uniting related capabilities, we can do things in one place, do them well, and elevate overall execution to better serve our clients and drive growth. Last month, we went live with the first step on the transition into our new model. While it has taken and will continue to take a lot of hard work as we transform our operating model over time. We are confident this new way of working will create better outcomes for our clients and it will also create more efficiency and enhanced risk management. Around 15% of our people around the world are now working in our new operating model, allowing them to feel more connected to what we're doing and empowered to make change. I'd like to thank our teams who are part of this exciting change for pushing us forward as we mark this important milestone. We also see meaningful opportunity over the coming years from continued digitization and re-engineering initiatives, as well as from embracing new technologies. To support this effort, we are making deliberate investments, enabling us to scale AI technologies across the organization through our enterprise AI hub. Last month, Nvidia announced that BNY Mellon became the first major bank to deploy a DGX SuperPOD, which will accelerate our processing capacity to innovate, reduce risk, and launch AI-enabled capabilities. Our people have identified hundreds of use cases across BNY Mellon, and we already have several in production today. Across the company, it's our people who continue to power our culture. If you were to walk the halls of BNY Mellon, you'd feel the energy and sense of purpose our leadership team feels when we visit our teams around the world. To that end, we're investing in our people. Over the past several months, we launched new learning and feedback platforms powered by AI, expanded employee benefits, launched a new well-being support program, improved and accelerated our year-end feedback and compensation processes, and more. And we're delighted to welcome Shannon Hobbs, who will join us as our new Chief People Officer in June. As we continue to power our culture forward, we adopted the following five core principles to guide how our teams work and collaborate as we drive our success as a company. The client obsessed, spark progress, own it, stay curious and thrive together. To wrap up, our performance in the first quarter provides a glimpse of BNY Mellon's potential. Running our company better, inclusive of our focus on platforms, is enabling us to improve profitability and invest in our future. While we are pleased to see early signs of progress, we remain focused on the significant work ahead of us, as we become more for our clients and deliver higher performance for our shareholders. As I have said before, the transformation of our company is a multi-year endeavor, but we've started 2024, the year of our 240th anniversary, with a sense of excitement and determination around what's possible. Now over to you, Dermot.

Thank you, Robin, and good morning everyone. Referring to Page 3 of the presentation, I'll start with our consolidated financial results for the quarter. Total revenue of $4.5 billion was up 3% year-over-year. Fee revenue was up 5%. This reflects 8% growth in investment services fees on the back of higher market values, increased client activity and net new business, partially offset by a 14% decline in foreign exchange revenue, as a result of lower market volatility. Firm-wide assets under custody and our administration of $48.8 trillion were up 5% year-over-year, and assets under management of $2 trillion were up 6% year-over-year, both largely reflecting higher market values. Investment and other revenue was $182 million in the quarter. Effective January 1, we adopted new accounting guidance for our investments in renewable energy projects resulting in an approximately $50 million increase to investment and other revenue. We have restated prior periods in our earnings materials to provide you with like-for-like, year-over-year and sequential comparisons. The adoption of this new accounting guidance is largely neutral to net income and earnings per share, as the increase in provision for income taxes roughly equals the increase in investment and other revenue. Net interest income decreased by 8% year-over-year, primarily reflecting changes in the composition of deposits, partially offset by the impact of higher interest rates. Expenses were up 2% year-over-year on a reported basis and up 1% excluding notable items, primarily severance expense. Growth was from incremental investments and employee merit increases offset by efficiency savings. Provision for credit losses was $27 million in the quarter, primarily driven by reserve increases related to commercial real estate exposure. As Robin mentioned earlier, we reported earnings per share of $1.25, up 11% year-over-year, a pre-tax margin of 29% and a return on tangible common equity of 20.7%. Excluding notable items, earnings per share were $1.29, up 14% year-over-year. Pre-tax margin was 30%, and our return on tangible common equity was 21.3%. Turning to capital and liquidity on Page 4. Our tier 1 leverage ratio for the quarter was 5.9%. Average assets increased by 1% sequentially, as deposit balances grew. And tier 1 capital decreased by 1% sequentially, primarily reflecting capital return to common shareholders, partially offset by capital generated through earnings. Our CET1 ratio at the end of the quarter was 10.8%. The quarter-over-quarter decline reflects a temporary increase in risk-weighted assets at the end of the quarter, which was driven by discrete overdrafts in our custody and securities clearing businesses, as well as strong demand for our agency securities lending program. Consistent with tier 1 capital, CET1 capital decreased by 1% sequentially. Over the course of the quarter, we returned $1.3 billion of capital to our shareholders, representing a total payout ratio of 138%. Turning to liquidity. Our regulatory ratios remained strong. The consolidated liquidity coverage ratio was 117% flat sequentially. And our consolidated net stable funding ratio was 136%, up 1 percentage point sequentially. Moving on to net interest income and the underlying balance sheet trends on Page 5. Net interest income of over $1 billion was down 8% year-over-year and down 6% quarter-over-quarter. The sequential decrease was primarily driven by changes in the composition of deposits, partially offset by the benefit of reinvesting maturing fixed rate securities and higher yielding alternatives. Against typical seasonal patterns, average deposit balances increased by 2% sequentially. Solid 4% growth in interest bearing deposits was partially offset by a 5% decline in non-interest bearing deposits, which was in line with our expectations. Average interest-earning assets were up 1% quarter-over-quarter. We reduced our cash and reverse repo balances by 2% and increased our investment securities portfolio by 5%. Average loan balances remained flat. Turning to our business segments starting on Page 6, please remember that in the first quarter we made certain realignments of similar products and services across our lines of business, consistent with our work to operate as a more unified company. As Robin mentioned earlier, the largest change was the movement of institutional solutions from Pershing to Clearance and Collateral Management both in the Market and Wealth Services segment. And we made other smaller changes across our business segments. We have restated prior periods for consistency. Please refer to the revised financial supplement that we filed on March 26th for detailed reconciliations to previous disclosures. Now, starting with Security Services on Page 6. Security services reported total revenue of $2.1 billion, up 1% year-over-year. Investment services fees were up 8% year-over-year. In asset servicing, investment services fees were up 8%, driven by higher market values, net new business and higher client activity. We've remained focused on deal margins, and as a result the year-over-year impact of repricing on fee growth was de minimis. Consistent with past quarters, we continue to see particular success with our ETF offering. ETF assets under custody and/or administration surpassed $2 trillion this quarter, up over 40% year-over-year on the back of higher market values, net new business and client flows, and the number of funds serviced was up 16% year-over-year. While the pace of alternative fund launches was slower than in the prior year quarter, investment services fees for alternatives were up over 10% on a year-over-year basis. Throughout the quarter, we saw broad-based strength across client segments, products and regions. In issuer services, investment services fees were up 11% reflecting net new business across both depository receipts and corporate trust, as well as higher cancellation fees in depository receipts. Foreign exchange revenue was down 11% year-over-year and net interest income was down 12%. Expenses of $1.5 billion were flat year-over-year, reflecting incremental investments, as well as the impact of employee merit increases offset by efficiency savings. Pre-tax income was $591 million, a 4% increase year-over-year, and pre-tax margin expanded to 28%. Next, Market and Wealth Services on Page 7. Market and Wealth Services reported total revenue of $1.5 billion, up 3% year-over-year. Total investment services fees were up 7% year-over-year. In Pershing, investment services fees were up 3%, reflecting higher market values and client activity, partially offset by the impact of business lost in the prior year. Net new assets were negative $2 billion for the quarter, reflecting the ongoing deconversion of the aforementioned lost business. Client demand for our Wealth Advisor platform, Wove, continues to be strong. In the first quarter, we signed nine additional client agreements, including our first direct indexing clients, and we onboarded four clients onto the platform. In treasury services, investment services fees increased by 5%, driven by net new business. We continue to invest in our sales and service teams, new products and technology. And so we are pleased with this solid growth and momentum continues to build. Last but not least, strength in clearance and collateral management continued with investment services fees of 13% on the back of broad-based growth both in the US and internationally. Net interest income for the segment overall was down 7% year-over-year. Expenses of $834 million were up 7% year-over-year, reflecting incremental investments, revenue-related expenses, and employee merit increases, partially offset by efficiency savings. Pre-tax income was down 2% year-over-year at $678 million, representing a 45% pre-tax margin. Moving on to Investment and Wealth Management on Page 8. Investment and Wealth Management reported total revenue of $846 million, up 2% year-over-year. In Investment Management, revenue was up 2% driven by higher market values partially offset by the mix of AUM flows and lower performance fees. In our wealth management business, revenue also increased by 2%, driven by higher market values, partially offset by changes in product mix and lower net interest income. Expenses of $740 million were flat year-over-year, primarily reflecting the impact of incremental investments and employee merit increases, which was offset by efficiency savings. Pre-tax income was $107 million, up 15% year-over-year, representing a pre-tax margin of 13%. As I mentioned earlier, assets under management of $2 trillion increased by 6% year-over-year. In the quarter, we saw $16 billion of net inflows into our long-term active strategies with strength in LDI and fixed income. And we saw $15 billion of net outflows from index strategies. Strength in our short-term cash strategies continued with $16 billion of net inflows on the back of differentiated investment performance in our cash management fund complex. Wealth management client assets of $309 billion increased by 11% year-over-year, reflecting higher equity market values and cumulative net inflows. Page 9 shows the results of the other segments. I will close by reiterating our existing outlook for the full year 2024. As I've said before, we have positioned our balance sheet for a range of interest rate scenarios and we're managing both sides of it proactively. And so, despite the repricing of the curve since the beginning of the year, we continue to expect net interest income for the full year to be down 10% year-over-year, assuming current market implied interest rates for the remainder of 2024. Similarly, on expenses, our goal continues to be for full year 2024 expenses excluding notable items to be flat year-over-year. We are off to a good start, but we have more work ahead of us to realize further efficiency savings and drive year-over-year expense growth rates lower over the coming quarters, while we continue to make room for additional investments across our businesses. Overall, we remain determined to deliver positive operating leverage this year. While we don't manage the firm to operating leverage on a quarterly basis, our performance in the first quarter with positive operating leverage on both a reported and an operating basis gives us confidence that we're on track. In light of the adoption of the new accounting guidance for our investments in renewable energy projects, which, as I discussed earlier, increases both our investment and other revenue, and the provision for income taxes. I'll note that we expect our effective tax rate for the full year 2024 to be between 23% and 24%. And finally, we continue to expect returning 100% or more of 2024 earnings to our shareholders through dividends and buybacks over the course of the year. As always, we will manage share repurchases cognizant of the macroeconomic environment, balance sheet size and many other factors. And so for the foreseeable future, we will calibrate the pace of buybacks to maintain our tier 1 leverage ratio close to the top end of our 5.5% to 6% medium-term target range. To wrap up, over the past three months, we've made good progress towards achieving our target for 2024. And we're encouraged by the drive we're seeing in all corners of the firm, as our people embrace being more for our clients, running our company better and powering our culture.

Our first question comes from Alex Blostein with Goldman Sachs. Please go ahead.

Hi, good morning. Thank you for the question. Robin, it's great to see the progress on organic growth initiatives across several businesses at BNY Mellon, as the initiatives you mentioned are beginning to gain traction. Could you provide some insight into the firm's organic growth rate goals for the next few years? How do you see that evolving for 2024? Additionally, we've noticed a significant amount of activity in Clearance and Collateral Management. Could you help clarify what part of this activity might be temporary versus what could be considered a stable baseline moving forward? Thank you.

Sure, Alex. Good morning. So, let me start with the growth question. As you point out, we are quite feeling quite good about the early momentum that we have in growth. As you know, we set it out last year to really get our house in order, generate positive operating leverage and really think about the various different investments to drive sort of shorter, medium and longer-term growth. And that's really what we've been focused on and we're pleased that we've got a good start to the year on it. Clearly, we're trying to control the things that we can control. As I mentioned in my prepared remarks and as Dermot touched on as well, our focus here has really been wrapped around being more for our clients, our commercial model. We hired our first Chief Commercial Officer. We're operationalizing One BNY Mellon, as I called it, the nuts and bolts, kind of getting into building that into our client coverage organization, our coverage practice, starting to deliver integrated solutions. I gave a couple of examples of those in my prepared remarks. And we've got a whole bunch more things that really cut across all of the different segments that are related to that. So look, it's early in the journey. I would have said maybe last year we were working the problem. I think now I would say we're working the opportunity. Could you just remind me the second part of your question?

Yeah, sure. Really nice results out of Clearance to Collateral Management for the firm and it's been a pretty active market in Q1, related to treasury issuance and activity there broadly. I'm just trying to get a sense for a better baseline to think about from here. Was there anything kind of transitory in the first quarter that helped the numbers or this is a good baseline to think about going forward.

In terms of transitory factors, not really, but let me outline a few key drivers. We need to remember that this business, like several others we operate, responds to trading volumes, and this past quarter was quite active in the US Treasury market. For better or worse, US Treasuries represent a growth area, which is likely influenced by more permanent trends rather than just cyclical ones. Additionally, we’ve been investing in the operating model of our Clearance and Collateral Management business. We took a part of our business closely related to Clearing from Pershing institutional clearing and integrated it with our broader clearing operations. As a result, our discussions with customers have become clearer and more effective, allowing us to provide comprehensive solutions across our clearing services, whether it pertains to US Treasuries, international operations, or various clearing models. Clients have positively responded to this integrated approach, which I would categorize as a secular shift.

Great. Thanks so much. I'll hop back in the queue.

And our next question comes from the line of Steven Chubak from Wolfe Research. Please go ahead.

Hi. Good morning, Robin. Good morning, Dermot.

Good morning, Steven.

I want to start with a question about capital. Specifically, could you explain the factors contributing to the growth in Risk-Weighted Assets in the first quarter, which was quite strong? Additionally, where do you see appealing opportunities to utilize that excess capital? Lastly, how should we approach the timing of the buyback? You mentioned the 6% target or the upper limit on tier 1 leverage, so I would like to understand how we should think about the buyback's timing considering the planned actions for the balance sheet and the potential for growth.

Okay, I'll address that. Steven, good morning. The increase in risk-weighted assets has two components. One was a temporary spike at the end of the quarter related to specific overdrafts in our custody and securities clearing sectors, which has since resolved. The other part stems from strong interest in our agency securities lending program throughout the quarter, especially as we approached the end of the quarter, and that demand has continued into the current quarter. I would say that these two factors are about equally responsible for the increase. Regarding the buyback, there’s a sense of déjà vu comparing our outlook for the first quarter of last year with this year's first quarter. Both periods started off strongly. However, there is significant market volatility. Last week, we saw a rise in rates due to a concerning inflation report. Last year, it was affected by the war in Ukraine, and this year, it is the geopolitical tensions in the Middle East. Back in January, we provided guidance indicating we would aim for buybacks of 100% or more of earnings throughout the year. While we don’t issue specific quarterly guidance, I want to reaffirm the goal of 100% or more, despite Q1 performing exceptionally well at 138%. I don't anticipate maintaining that high pace, but we will evaluate it on a quarterly basis.

Understood. And for my follow-up, maybe just drilling down into the investment and wealth margins, in particular, since across the other segments, we're seeing continued progress towards the longer-term targets. That's admittedly the segment with the biggest shortfall. I know in the prepared remarks, Dermot, you noted that you're making investments in the business and just wanted to better understand, one where are those dollars getting deployed? And maybe if you could just speak to the primary drivers underpinning that glide path to 25%. How much is contingent on revenue growth versus expense optimization?

The pre-tax margin for Q1 was about 13%. When adjusted for typical seasonal fluctuations related to retirement-eligible stock, the margin would have been closer to 16%. We feel positive about this, although there's still a lot of work ahead. The performance varies by business segment; in some areas, our asset managers are launching new products while clients are shifting from higher-risk equities to more stable fixed income. However, we are also seeing growth in assets under management. We were particularly pleased with the performance of our cash management business in Q1, which experienced strong inflows and returns. We are focused on investing in the business to provide our clients with solid investment options. Additionally, there is significant opportunity to enhance our operations by breaking down silos and integrating asset management with the broader company, which will allow us to reduce costs and improve efficiency. We are addressing both revenue opportunities and efficiency challenges simultaneously.

Very helpful color. Thanks so much for taking my questions.

Our next question comes from the line of Betsy Graseck with Morgan Stanley. Please go ahead.

Hi. I had two questions. One was just on the AI commentary that you were leading with in the prepared remarks and I wanted to understand how you're thinking about the benefits to the expense ratio and the time frame with which this is going to flow through? Because there's clearly revenue enhancing opportunities and expense reducing or flattening. And how much of this AI investment is, how important is it to your 2024 expense outlook. And yeah, if you could give us the medium-term outlook, that'd be helpful, thanks.

Sure, hi Betsy. First of all, it's great to have you on the call. Really glad to have you back and to know that you're doing well.

Thanks so much.

On the topic of AI, let me address the latter part of your question first. I don't believe this will significantly impact us in 2024. While we will be implementing some initiatives, the major benefits will not really be felt until 2026 and beyond, even though we might see a bit in 2025. To expand on your question, I want to highlight how we are integrating AI by focusing on three main pillars that guide our company’s efforts. First, enhancing our offerings for clients. There are solutions available that can aid clients in making informed decisions, identifying risks, and improving their efficiency. Currently, we have software in the market that provides predictive trade analytics around fails and settlements. This allows our clients to anticipate potential issues and take corrective actions, often leveraging other BNY Mellon services to boost their operations. Second, improving our internal processes. This involves streamlining business operations and increasing productivity through tools that identify anomalies and assist our developers. I recently spoke with a developer who has just over a year of experience and they reported a 25% increase in productivity thanks to using GitHub Copilot during these early stages. There is much more potential for efficiency gains here. Lastly, fostering a supportive culture. We aim to utilize AI to empower our employees to perform their tasks more effectively. We see numerous opportunities for AI to assist us over time. Crucially, as Dermot and I referenced, our platform strategy involves creating hubs of excellence. This is vital for AI as we want to avoid past issues of disparate efforts. Different problem statements may appear distinct, yet they can share common root causes. For instance, the tasks of responding to an RFP, summarizing documents, or initiating research reports may seem unrelated, but the underlying AI technologies and platforms they require are quite similar. Therefore, we are establishing our AI hub to consolidate these various use cases and deliver versatile AI solutions that can be applied throughout the company. We are optimistic about the significant impact this will have over time, although it won't unfold in 2024.

Okay, got it. That's super helpful with the color. Appreciate that. And then just a follow up on the tax rate guidance. This is part of the accounting change, I believe, is that right? And can you tell us where in the PPOP the offsets are, thanks?

Sorry, I missed the last part of it, Betsy. Where are they?

Are the offsets related to the taxes affected by the accounting change?

Yeah, so it's economically it's net neutral for the firm. It's just a gross up in revenue which will show up in the interest and other revenue line and then the offset to that is in the tax line. And we filed an 8-K, a couple of weeks ago where we restated all the prior periods for comparison so that people will see it on a consistent basis going forward.

Sure, I just wanted to highlight that your tax rate guide has the offsets in the revenue. So I appreciate that. Thank you.

Yeah.

Our next question comes from the line of Ebrahim Poonawala with Bank of America Securities. Please go ahead.

Thank you good morning.

Good morning Ebrahim.

Yes, I guess, not sure Dermot if this was addressed here but in terms of your outlook on deposits, I think the period ends, so a pretty big uptick to $309 billion. Just give us a sense of, within your NII guidance, one what are you assuming in terms of deposit balances? And secondly, if the forward curve holds, is the next inflection on NII and margin higher or lower? Yeah, thank you.

So, as at the quarter end, Ebrahim, I think the spot number was around $310 billion of deposits. And that was largely, you may recall that quarter end this year fell on a good Friday where markets were closed. So we got a lot of clients putting cash in, so that they could make certain payments. And so we saw a kind of surge in deposits over the last few days of the quarter. And they've largely left the system now. We've returned to more normal levels, which is in the kind of high range. So that's kind of really the explanation for the spot deposit balance versus the average trend. So sequentially, we're down 6% in the deposits, or NII, an 8% year-over-year. And we saw a 2% growth in the deposit balance, generally speaking. Our guide at the beginning of the year was down 10% and given the rate volatility and what's going on with the inflation report last week and the back-up in rates et cetera, et cetera, we don't see, you know, there's nothing that's causing us to think that we should change our guidance between now and the balance of the year. We're very neutrally positioned, as to whether rates go up a little bit from here or down a little bit from here. And we feel very good about the overall guidance that we gave in January, which was approximately down 10%.

Got it. And I guess one just follow up in terms of some of the actions you took in moving businesses in Pershing. As we think about the strategic review, I guess Robin, maybe it began a year ago or longer than that, give us a sense of in terms of the franchise positioning, how the businesses are talking to each other and if they are in the right place within the enterprise. Is all of that done? How close are you to getting the franchise synced up in terms of what is coming along with regards to what you want to achieve in terms of client synergies? Thank you.

So the punch line is we're making good progress, but you're essentially asking a cultural question and we're not done on that. So when we did, to go back to your point, when we did our original strategy reviews, which is 18 months or so ago now, and took us a few months to go through, we were really focused on answering the questions of what are we doing, are we doing the right things, how are we doing them, are we doing them in the right way, do we have the right people doing them, and so we looked at that and we certainly found bits of the company that were just in the wrong place and so we've lifted those bits up and we put them in what we now think of the right place so that's what both Dermot and I talked about in our prepared remarks and that was what some of the restatement of prior periods so that you could make the easier comparisons there was about. That was basic blocking and tackling but the bigger opportunity for sure is how the businesses work together, not only to be more for clients by saying, hey, that client over there is a client, but they're not my client in my business, can we work together to basically make them a client of both businesses? That's very significant. That's where we talk about maturing One BNY Mellon into the real heart of a new commercial coverage model and that's being driven by our Chief Commercial Officer. Another part of this is saying, there are things that we used to think of as standalone capabilities, some might call them products, we think about them as client platforms. And in fact, what the client is asking for, and we really heard this when we did our voice of client survey, they don't want these individual products, they want us to take them and weave them together to create solutions for them that are on point to their needs. And so we've also started to do that, and I mentioned some examples of that, and that's a very powerful thing because that takes the breadth of our company, and rather than it being siloed, which is getting in the way of solutions, it's now actually ending up being the opportunity for us to deliver from the breadth of our platforms to our clients with solutions that frankly some other people aren't going to be able to do. So that's we think very exciting and in those journeys, we're still relatively early and that is cultural and we've been doing a lot of things internally in the firm to make sure that our people are lined up behind that. It's early days, but we're quite excited about the direction of travel.

Got it. Thank you both.

And our next question comes from the line of Brennan Hawken with UBS. Please go ahead.

Good morning. Thanks for taking my questions. I'd like to start, Dermot, when you were walking through Pershing, I believe you talked about the offboarding and the impact of how that was weighing on the net new assets. Could you give us an update on how far we are along in that off-boarding process and how much we should continue to expect for the rest of the year? And then also LPL recently announced the acquisition of Atria, which I understand was a Pershing client, and they're planning to consolidate those operations in 2025. So is that going to extend maybe some of the headwinds that we're seeing from some of these idiosyncratic off-boardings?

Thank you for the question. Regarding Pershing, we are continuing to invest in it and it is still growing. Since the announcement of the deconversion, we have been focused on earning our way out of this situation, and that is what is happening now. We feel positive about Pershing and our ability to compete, as it is a market with mid-single digit annual growth and we play a significant role in it. Although the deconversion was unfortunate, we are moving forward and learning as we go. We expect to complete most of the deconversion by the third quarter of this year. In terms of competition, while there are dynamics like the LPL Atria acquisition, it hasn’t raised any immediate concerns for me. I believe we are gaining more ground than we are losing and our investments are proving effective. Additionally, regarding Wove, we are developing a strong pipeline with a healthy backlog. We added nine clients to the platform in the first quarter of this year, and we remain confident in our guidance of generating $30 million to $40 million in revenue this year, which we committed to in January.

And Brennan, I just add on the business front to that, which is remember that when we look at a deconversion, for sure those happen, and the one that you're referring to, the original one was a larger one. But we're also growing with our clients. Our clients are growing with us and we also are on the receiving end of roll-ups as well. Our clients are quite acquisitive and we have a couple of clients who've been doing acquisitions and we have some of our largest clients who are growing very significantly and very healthily. So it's always unfortunate when there's a roll-up that goes against us, but when there are roll-ups that go with our clients, those things balance out to some extent which is why Dermot makes the point about overall, we still feel quite enthusiastic about the net new assets growth over time.

Thank you for that information. Regarding the deposits, I'm curious about the current situation. Although you may not want to change expectations just yet, it appears that, based on recent trends, deposits seem to be performing better than anticipated. We observed an increase in deposit balances at year-end that has been maintained, which is somewhat uncommon. Although the balances have declined from the end of the period at 331, they are still roughly in line with your average. Is there a specific reason for the anticipated decline in deposits, or is it simply a matter of being cautious?

I would say it's a bit of both, but I anticipated deposits to decline this year, which hasn't really occurred yet. I mention this in relation to quantitative tightening. In the first quarter, the decrease primarily came from the reverse repo program. If quantitative tightening continues and interest rates remain elevated for an extended period, I expect deposits to ultimately decline. Therefore, I don't see a reason to change the guidance projecting a 10% decrease in net interest income year-over-year. Looking at the makeup of the deposits, there is a mix of interest-bearing and non-interest-bearing accounts. As interest rates persist at higher levels, I expect non-interest-bearing accounts to gradually decrease. While the overall balance may be higher, the composition will impact the overall net interest income guidance. It's not only about the total amount but also about how it's composed.

Yeah, yeah, that's great. Thanks for the candor and the embracing the uncertainty.

Our next question comes from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Hi.

Hi, Mike.

Can you hear me? Yeah. So I guess non-interest bearing deposits inched down again, and I'm just wondering where that floor is. I guess it's 18% versus 19% last quarter and 26% year-over-year. And so on the other hand, your servicing fees were up 8% year-over-year. So I'm not sure if I should draw a link or not. Maybe what you're not getting in non-interest bearing deposits, you're getting in servicing fees. So I guess the question is, how are you getting such strong servicing fee growth year-over-year of 8%, how much of that is due to markets, how much of that is sustainable, and is any of that simply a substitution effect from the non-interest bearing deposits to servicing fees?

Thanks for the question, Mike. So let's go with the fee component first. Q1 is kind of one of those quarters where we came into the year I guess both in deposits and in pipeline and sales activity in very good shape. As it relates to kind of asset servicing in particular, the pipeline was strong, we felt good coming into the year, markets rallied nicely. And so clients were in risk on mode, doing more with us. Flows were stronger. Balances are higher. And we're winning our share of mandates. Little factoids for like, of all the deals that we competed for in Q1, we won north of 50%. So we're competitive, we're pricing well, we're very focused on client profitability and deal margin and it goes back to the point that we made in several quarters prior to this where we're very focused on the cost to serve. And so by improving margin, focusing on cost to serve, being more for clients, we can be more competitive in the pricing point. And I made that remark, I made the point in my prepared remarks that we saw repricing being de-minimis. So it was a good quarter all around and we feel very good about the backlog and the pipeline going forward. As it relates to the mix between fees and deposits, you know, we don't lead with deposits as an institution. Clients do multiple things with us across the enterprise and as a consequence of that they leave deposits with us. You know, it's an important point but two-thirds of our deposits are operational in nature and therefore very sticky. But with a higher for longer rate environment, it's only natural to expect that people with NIBs are going to over time move out of that and look for a higher yield. It's inevitable and it's a fact of life and we're ready to deal with that but I'm very proud of what our global liquidity solutions team is doing in terms of winning their share of the business in terms of the deposits and how we price them and so sequentially, we've seen the balances go up because of that competitive pricing. So all-in-all, when you take the ecosystem together we feel very good about where we're at.

And Mike there was nothing idiosyncratic about trade-offs to the other part of your question. I don't see the quarter built around that at all.

What can be done to reverse the trend for sustainable growth in growth and servicing fees and asset management? Is selling that ever a possibility? While I understand how the rest of the firm can come together as one cohesive unit over time, how does asset management fit into that?

Sure, this is a topic we discussed last year, and at that time, I mentioned that we believe the business can enhance our firm's strategy, but we still had more work to do. We needed to establish various steps to effectively implement this idea, and that is what we've been focusing on in recent months. The core idea is that there is a strong industrial rationale for aligning a $2 trillion manufacturing platform with BNY Mellon's $3 trillion retail distribution capacity, especially when considering our wealth management and Pershing divisions, with Pershing alone managing over $2.5 trillion in client assets. If we operated solely within investment management, we could question whether we would have sufficient scale and capability to compete effectively. However, when integrated with the rest of the company, we believe there is a compelling case for success. We recognize that we haven't fully leveraged these advantages in the past, so our strategy is to allow investment management to develop in this new direction. We are already seeing early signs of progress. I've highlighted some points in my earlier remarks, including the fact that our broader distribution platform can attract other investment managers who don't have our level of distribution and want to partner with us to enhance our offerings, which in turn makes our platform more comprehensive and appealing. We have set our goals to increase the pre-tax margin in this business to over 25%. It's important to note that we have not increased expenses in that segment or in security services because we are concentrating on improving margins while still achieving some growth. Our focus is on exploring these opportunities, and we'll see how we perform in the coming quarters. This quarter marked a significant advancement for us.

All right. Thank you.

And our next question comes from the line of Glenn Schorr with Evercore ISI. Please go ahead.

Hi, thank you. Robin brought it up, so maybe it wasn't a significant issue, but T+1 implementation starts at the end of May. I'm wondering if this will lead to a substantial increase in expenses that we might get relief from in the future. Also, are there any challenges regarding net interest income or advantages related to capital that we should consider as we transition to a T+1 environment? Thank you.

So T+1, sure we had to for sure spend money in different parts of the company in order to be able to ready ourselves for this. We view that as frankly ordinary course of business. There's always some market structure change going on in the world that we have to respond to. So while they may be individually lumpy, there's always something. So we just think about that as part of the expense of running the company and not something that will yield a particular benefit when we happen to have finished the work. Now, I do think that T+1 overall provides benefits to the financial system, improvements in efficiency, some risk reduction. I would say to the second part of your question that more of that probably accrues to our clients because we're not as big a principal player there. It can improve liquidity and capital requirements in the fullness of time. The industry's come a long way. You know, it wasn't that long ago that we're at T+5, T+3 sort of moving down the curve. And I will also say from an opportunity point of view, not only do clients look to us to help them navigate these types of things because they're complicated and detailed, and they want us to essentially help them in executing this type of change, and that's exactly what we've been doing. But we also think that there are just opportunities associated with these sorts of inflections because clients look at us and it does sometimes cause the question to be raised of another big change in the post-trade landscape life's too short I'm an investment manager or I'm broker dealer or I want to go about the core of my business, I don't have to worry about that stuff as much as I currently do. BNY Mellon, can you help us? Can you help us and maybe there's a platform sale opportunity there for a little bit more outsourcing? Because if the world makes these changes, speeds up, gets more complicated, more change management, we of course have the benefit of scale, we get to change once and we get to take some of those problems off their hands. So I'd call that out when it comes to real-time payments, I'd call it out in T+1, I'd call it out in clearing. Each time these things happen, we look at it through a lens of opportunity as well as a lens of client service but overall also just good for the market nothing good happens between trading and settlement as is often said.

And Glenn on this specific point about headwinds as it relates to NII, I kind of look at the last two quarters together in terms of the strength of what we've done on NII and I feel overall we're in a good place. The balance sheet is very clean. Our CIO book is well positioned and kind of short duration and the CIO is doing a really good job at optimizing yield. And so when you see our securities that are maturing at the moment, they're rolling off at a 2% to 3% rate and then are being deployed at current market yields. So based on what I see today with the back-up in rates that happened last week as a result of the hot inflation report, we feel pretty good about where things are for the balance of the year just using that forward curve. As I said earlier, rates up a little, down a little, don't materially impact us. And so we feel like our base case is, we feel pretty good about it.

Thank you all.

And our final question comes from the line of Gerard Cassidy with RBC. Please go ahead.

Hi, Robin. Hi, Dermot.

Hey, Gerard.

Dermot, could you provide some clarification? I noticed you mentioned in your prepared remarks that the average loan balances were essentially unchanged in Q1 compared to Q4. However, the quarter-end number for loans was significantly higher, around $73 billion, compared to the fourth quarter. Was there something towards the end of the quarter that led to that increase?

Thanks, Gerard. Again, it was a little bit of what I call the Good Friday effect, where clients use our overdraft facility mechanisms going into that weekend. And so that really caused the spot balances to go up and that's kind of largely cleaned out so has reverted more to the average numbers that you're familiar with.

Okay, good. And I know this is not a big area for you guys, so maybe you could give us better insights since it's not as big as it is for a traditional bank. But can you maybe give us some color on the commercial real estate? I know you pointed out you've built up the allowances there. What are you guys seeing? Is it similar to what we're reading about and hearing from others or is it something different?

So I would say, look, we're prudently marked in the commercial real estate portfolio. Overall, our CRE portfolio in the context of our overall balance sheet is quite small. 3% of total loans, $2 billion. And the reserve builds that we took in Q1 was really just kind of being prudent on a couple of specific situations that are coming up for restructuring. But I would let you know that they're all still paying and everything is working, and their class A office buildings. And we feel good about the occupancy. So I would say overall very, very clean and nothing that really has me unduly concerned. And look, there has been a lot of chatter in the market, in the press over the last quarter about what's going to happen. I'm sure the back-up in rates hasn't really helped that chatter but like surveying other banks' results so far this quarter I haven't really noticed any specific CRE bills on the back of what's been going on over the last couple of quarters, so it does feel like as a sentiment matter to be quite muted at the moment on the back of others' earnings release, at least what I've observed.

I would like to add that the situation in corporate real estate varies greatly depending on the specific markets involved. Some regions are experiencing more distress than others. While the focus remains on the office sector, there are also questions surrounding multi-family properties. However, the overall shortage of housing in the U.S. is likely to be beneficial for that aspect. The key factor to consider right now is the status of long-term interest rates. There is considerable discussion regarding the future of fed funds—whether the Federal Reserve will cut, maintain, or slightly increase rates. Yet, what truly influences commercial real estate is the yield curve from five to ten years. If rates exceed 5%, the consequences for commercial real estate differ significantly compared to when they are at 4% or 10%. If rates reach 6%, which is not our base case but still a possibility, it could lead to more challenging outcomes for some market participants. Therefore, the trajectory of the 10-year rate will heavily impact the commercial real estate market. This situation may also affect refinancing in 2024 and especially in 2025.

Thank you. Appreciate those insights. Thank you.

And with that, that does conclude our question and answer session for today. I would now like to hand the call back over to Robin with any additional or closing remarks.

Thank you, operator. I'd just like to wrap up by thanking our employees for their hard work to unlock the tremendous opportunity inside of BNY Mellon. We started the year with great momentum, delivered very solid results in the first quarter, and the pace of change continues to pick up. And I want to thank our investors for their continued support. We appreciate your interest in BNY Mellon and thank you for your time today. If you have any follow-up questions, please reach out to Marius and the IR team. Be well.

Thank you. And that does conclude today's conference and webcast. A replay of this conference call and webcast will be available on the BNY Mellon Investor Relations website at 2 Eastern Standard Time today. Have a great day.